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Why the recent hikes in power tariffs are good for solar energy in India

Why the recent hikes in power tariffs are good for solar energy in India

The recent hikes in power tariff by the distribution company B.E.S.T. comes amidst a trend of increasing power prices throughout the country. Rising power tariffs drive up the cost of energy procurement and reduce the overall profitability of industries and commercial consumers. With the economy slowing down, this can only add to the woes of the industrial and the commercial sector. Such consumers of power are actively looking for alternate energy solutions.

In B.E.S.T.’s case, prices have risen by nearly 30% in all consumer categories

Commercial consumers are the worst affected with prices as high as INR 10.79 per unit

Several DISCOMs across the country are faced with huge financial losses and raising power tariff despite stiff opposition remain the only option to stay afloat

The price of solar energy has fallen by nearly 40% over the last two years owing to economies of scale, technological improvements and competitive pressures on OEMs. This has made solar energy cost competitive with industrial and commercial power tariffs. Given the trend of rising power tariffs, it is only a matter of time before solar is cost competitive across all consumer segments. The average price of generation of solar energy is around INR 7 per unit. Commercial consumers of B.E.S.T. for example already pay an average of INR 9.27 per unit – 30% higher than the price of solar energy (see graph).

However, solar energy comes with a few concerns:

Energy consumers do not want to invest in the high capital costs of setting up a power plant

Solar power is intermittent and completely absent during the night times

To work around the first concern, solar companies have started to offer solar energy as a service. These companies are known as Renewable Energy Service Companies (RESCO). The energy consumer does not have to invest in the capital costs of setting up the plant – they only pay for the energy consumed.

By setting up a hybrid system (a mix of grid power and solar power), the intermittency of solar power can be managed. The grid power is used during the night times and cloudy days while solar power is used during the day. These innovative business and technology models are transforming the energy landscape in India. The coming years will see distributed energy taking prominence of which solar will play a crucial role.